Yahoo News reports on comments by Mohammed El-Erian, head of Pimco, on the Greece situation:
“After a year, every indicator has unfortunately worsened, despite the incredible quantity of financial assistance,” Mohammed El-Erian told Italy’s Corriere della Sera daily,
“All of this has terrible human consequences and it’s associated with a transfer of liabilities from private creditors to European taxpayers. Why? Very little is being done to deal with the excess of public debt, and the conditions for higher growth are not being put in place,” he said.
“Further on, if this approach is kept up, more money will be wasted to save private creditors and the risk of a disorderly restructuring of the debt will be greater.”
El-Erian is correct in his assessment, but rather late to the party. As an analyst of the Keynesian persuasion, he initially advocated stimulus and bailouts as solutions to the economic crisis.
Four months ago, it was reported:
Pimco Chief Executive Mohamed El-Erian in a report Saturday said Europe should relieve Greece of part of its debt since its saving program would curb economic growth. El-Erian told German magazine Der Spiegel that Europe should cut Greek debt from 140% of GDP to 90% to help solve the country’s debt crisis, Reuters reported.
Read more: http://www.foxbusiness.com/markets/2011/02/05/europe-cut-greek-debt-el-erian/#ixzz1PomfSlxz
The problem with his solution then was that it removed some debt by placing it on the backs of (presumably) European banks. When they began to fail, then what? Bailouts by European taxpayers? How does that differ from the criticism above other than they may have more wealth to drain away?
I suspect that Mr. El-Erian might object to the Keynesian label, after all it is becoming more epithet than classification of economic thought these days. It might be appropriate to refer to him as a “pragmatist” with heavy Keynesian tendencies. Yet pragmatist is merely a term that justifies an ad hoc problem solving approach. The danger of ad hockery (to coin a phrase) is that problem-solving too easily approximates that of the Dutch boy plugging leaks in the dike. It tends to defer problems rather than solve them. Eventually the problem overwhelms the number of fingers the Dutch boy has.
So it is with economic problems. Just as water is a powerful force of nature, so is economics. Both can be redirected to some degree, but eventually both get to where they are going regardless of temporary diversions.
Mr. El-Erian is a very likable guy based on interviews I have seen. Like other Pimco executives, he appears too smooth and over-lubed in HBS* oil. Perhaps I am a bit harsh on interpreting his behavior. One thing is certain — if you decide to take an opposing position to his, make sure you have done your homework. He is a very bright and successful guy and not often wrong.
H/T to EBW for first set of quotes.
*HBS is an abbreviation for Harvard Business School.
